New UPI Policy 2026 Explained: Charges, Rules and Impact on Google Pay, PhonePe and Paytm

The new UPI policy has created confusion among customers and shopkeepers. Many people believe that every UPI payment above ₹2,000 will now attract a charge.

That is not correct.

Ordinary customers can continue using UPI without paying a transaction fee. Sending money to friends or family remains free. Customers paying shops, websites or service providers through UPI should also not be charged an additional UPI fee.

The important change concerns certain merchant payments above ₹2,000. From 15 October 2026, eligible merchants may have to pay a Merchant Discount Rate, commonly known as MDR.

This article explains the new policy in simple language and describes how it affects Google Pay, PhonePe, Paytm, BHIM, Amazon Pay, WhatsApp Pay and other UPI applications.

Quick Summary of the New UPI Policy

The new UPI rules can be understood through the following points:

• Person-to-person UPI transfers remain free.
• Customers should not have to pay MDR.
• Merchant payments of ₹2,000 or less remain free.
• Certain merchant payments above ₹2,000 attract 0.4% MDR.
• The maximum MDR on a standard transaction is ₹300.
• Eligible small merchants are exempt.
• Certain essential-service payments attract a flat ₹5 MDR.
• Capital-market payments attract a lower rate of 0.02%.
• Eligible rural and semi-urban merchant QR payments remain exempt.
• The rules apply across all participating UPI applications.

The Government says approximately 96% of UPI merchant transactions will remain unaffected.

When Will the New UPI Rules Start?

The new framework was announced on 15 September 2026.

It is scheduled to take effect on 15 October 2026.

Until that date, the existing UPI charging arrangements continue to apply.

What Is UPI?

UPI stands for Unified Payments Interface.

It is an instant payment system that allows money to move directly between bank accounts. The National Payments Corporation of India, commonly known as NPCI, operates the UPI network under the regulatory framework of the Reserve Bank of India.

Applications such as Google Pay, PhonePe, Paytm and BHIM provide an interface for accessing UPI. These applications do not operate separate payment networks.

For example, a customer can scan a PhonePe merchant QR code and complete the payment using Google Pay, Paytm, BHIM or another compatible UPI application.

The transaction still travels through the common UPI network and the participating banks.

What Is MDR?

MDR stands for Merchant Discount Rate.

It is a payment-processing fee charged to a merchant for accepting a digital payment. It is similar to the processing fee that businesses may pay when customers use debit or credit cards.

MDR is not a tax collected by the Government.

The amount is distributed among the organisations involved in processing and settling the payment. These may include:

• The customer’s bank
• The merchant’s bank
• The UPI application
• Payment service providers
• Merchant-acquiring organisations

The stated purpose of MDR is to support the cost of running the UPI ecosystem, including:

• Payment infrastructure
• Cybersecurity
• Fraud prevention
• Network reliability
• Customer support
• Transaction dispute handling
• Technology development

Which UPI Payments Will Remain Free?

Person-to-Person Payments

Payments sent to another individual remain free.

Examples include:

• Sending money to a friend
• Sending money to a family member
• Transferring money to another personal bank account
• Paying back money borrowed from someone
• Sharing household expenses

The ₹2,000 threshold does not apply to genuine person-to-person transfers.

For example, sending ₹25,000 to a family member will not attract MDR merely because the amount is above ₹2,000.

Normal bank and UPI transaction limits will still apply.

Merchant Payments Up to ₹2,000

Payments of ₹2,000 or less made to merchants will not attract MDR under the new framework.

For example, if you pay ₹1,500 at a grocery shop, there will be no MDR.

Payments to Eligible Small Merchants

Small merchants receiving up to ₹1 lakh per month through UPI QR payments are exempt under the announced policy.

Therefore, an eligible small shopkeeper may continue accepting UPI payments without paying MDR, even when an individual transaction exceeds ₹2,000.

The merchant’s bank or payment provider will determine whether the merchant qualifies for the exemption.

Eligible Rural and Semi-Urban Merchants

Qualifying UPI QR payments made to merchants in rural and semi-urban areas are also exempt.

The customer does not have to determine whether a merchant falls into this category. The classification is handled through the merchant’s bank, acquiring institution and payment-service records.

Which Merchant Payments Will Attract MDR?

A standard person-to-merchant UPI transaction above ₹2,000 may attract an MDR of 0.4%.

The merchant pays this fee. It should not be added separately to the customer’s bill.

Example 1: Purchase of ₹5,000

Suppose a customer purchases an item worth ₹5,000 from an eligible merchant.

The MDR calculation will be:

₹5,000 × 0.4% = ₹20

The merchant may pay ₹20 as the processing fee.

The customer should authorize only ₹5,000.

Example 2: Purchase of ₹20,000

For a payment of ₹20,000:

₹20,000 × 0.4% = ₹80

The merchant may pay ₹80 as MDR.

The customer should still pay only the purchase amount of ₹20,000.

Maximum MDR Limit

For standard merchant payments above ₹75,000, the MDR is capped at ₹300.

For example, 0.4% of ₹80,000 is ₹320. However, because the maximum fee is ₹300, the merchant would pay only ₹300.

Special Rate for Essential and Low-Margin Sectors

Certain specified merchant categories will attract a flat MDR of ₹5 on an eligible transaction instead of the normal 0.4% rate.

Reported categories include:

• Railways
• Fuel
• Agriculture
• Utilities
• Telecom services
• Insurance
• Credit-card bill payments
• Tax payments
• Certain public services

This reduced rate is intended to prevent a large processing cost in essential or low-margin sectors.

Customers should not be asked to pay this ₹5 as an additional UPI charge.

MDR on Capital-Market Payments

Qualifying capital-market transactions have a lower MDR of 0.02%, subject to a maximum of ₹300.

These transactions may include eligible payments relating to:

• Shares
• Mutual funds
• Other approved investments

For example, the MDR on an eligible investment payment of ₹1 lakh would be:

₹1,00,000 × 0.02% = ₹20

This lower rate is intended to encourage participation in formal investment markets.

Will Customers Have to Pay More?

Customers should not directly pay MDR.

A customer purchasing an item worth ₹5,000 should authorize ₹5,000—not ₹5,020.

Banks, payment applications and merchants are not supposed to add a separate UPI platform fee or hidden charge merely because the merchant has to pay MDR.

However, a business may review its general prices when its operating costs increase. This is different from displaying a separate charge labelled “UPI fee” or “MDR.”

Customers should always check the final amount before entering the UPI PIN.

Does the Policy Differ Between Google Pay, PhonePe and Paytm?

No.

The core policy applies at the UPI-network level. It does not depend on which application the customer uses.

Switching from Google Pay to PhonePe, Paytm or BHIM will not change whether a merchant transaction is eligible for MDR.

The following factors are more important than the application:

• Whether the payment is person-to-person or person-to-merchant
• The transaction amount
• The recipient’s merchant classification
• The merchant’s monthly UPI receipts
• The merchant’s business category
• Whether an exemption applies
• The merchant’s location

Impact on Google Pay Users

Google Pay customers can continue sending money to other individuals without paying UPI transaction charges.

Customers making payments to merchants should also not be charged MDR.

For merchants, an eligible payment received through Google Pay may attract MDR during settlement. The same can happen when the merchant displays a Google Pay QR but the customer uses PhonePe, Paytm or another UPI application.

The QR branding does not determine the charging rule.

Impact on PhonePe Users

PhonePe customers can continue making personal transfers and merchant payments without directly paying MDR.

PhonePe provides services for both customers and merchants, including:

• Merchant QR codes
• Online payment acceptance
• Offline payment acceptance
• Payment gateways
• Soundbox services
• Settlement and reporting services

An eligible merchant may see applicable MDR in its settlement or merchant statement.

A customer scanning a PhonePe QR code should not be charged a separate UPI fee.

Impact on Paytm Users

Bank-account UPI payments made through Paytm remain free for customers.

A Paytm merchant QR can generally accept payments from other compatible UPI applications.

Eligible Paytm merchant transactions may attract MDR during settlement. However, merchants should distinguish UPI MDR from other possible Paytm business-service charges, such as:

• Soundbox subscriptions
• Payment-gateway fees
• Device rental
• Wallet-related fees
• Card-processing fees
• Other merchant-service subscriptions

These are separate commercial services and should not be confused with the new UPI MDR.

Impact on BHIM Users

BHIM is NPCI’s UPI application.

Person-to-person transfers made through BHIM remain free. Customers paying merchants through BHIM should also not be charged MDR directly.

Using BHIM does not create a special exemption for merchants. If a merchant transaction is eligible for MDR, using BHIM instead of another UPI application does not remove the charge.

Impact on Amazon Pay Users

Amazon Pay UPI transactions funded from a linked bank account follow the same UPI-network rules.

Customers should distinguish between:

• Bank-account UPI payments
• Amazon Pay Wallet payments
• Shopping-related charges
• Delivery fees
• Convenience fees
• Other Amazon services

A separately disclosed charge connected with an Amazon service is not necessarily a UPI MDR.

Impact on WhatsApp Pay Users

Sending money to friends or family through WhatsApp Pay remains free.

Merchant payments started inside WhatsApp are governed by the same UPI transaction classifications and limits.

A merchant does not avoid MDR simply because the payer starts the transaction through WhatsApp.

Impact on Other UPI Applications

The same basic policy applies to other participating UPI applications, including:

• Navi
• CRED
• super.money
• MobiKwik
• FamApp or FamPay
• Bank-operated UPI applications
• Other NPCI-approved applications

The popularity or market share of an application does not determine whether a transaction attracts MDR.

Difference Between UPI, Wallet and Payment Gateway Charges

Many payment applications offer more than ordinary bank-to-bank UPI.

A customer may encounter different types of services and charges within the same application.

Bank-Account UPI

Money moves directly from the customer’s linked bank account to the recipient’s bank account.

The customer should not pay MDR.

UPI Wallet or Prepaid Instrument

The payment is funded through money stored in a wallet or another prepaid payment instrument.

Separate interchange or wallet rules may apply.

Credit Card or Credit Line on UPI

The transaction is funded through a credit card or approved credit facility rather than an ordinary savings or current account.

The credit provider may have separate terms and charges.

Payment-Gateway Fee

An online platform may charge for using its complete checkout, booking or payment-processing service.

Such a charge must be properly disclosed. It should not be falsely described as a customer UPI MDR.

Recharge or Booking Fee

An application may charge a fee for mobile recharge, ticket booking, insurance, bill-payment processing or another service.

This fee may relate to the service being purchased rather than the UPI payment method.

Can Merchants Add MDR to the Customer’s Bill?

The new framework does not permit MDR to be passed to customers as a separate UPI charge.

If a product costs ₹5,000, the merchant should not demand ₹5,020 simply because the customer selected UPI.

If a merchant asks for an additional amount, the customer should:

1. Ask for an itemized bill.
2. Check whether the amount is a disclosed service charge or an unauthorized UPI surcharge.
3. Keep a screenshot or photograph of the payment request.
4. Save the transaction ID.
5. Report the matter through the UPI application.
6. Contact the linked bank if necessary.

What Shopkeepers and Businesses Should Do

Businesses accepting UPI payments should take the following steps:

1. Confirm their merchant classification with their bank or payment provider.
2. Check whether they qualify for the small-merchant exemption.
3. Verify the business category assigned to their merchant account.
4. Review settlement reports after 15 October 2026.
5. Match MDR deductions with the corresponding transactions.
6. Record MDR as a payment-processing business expense.
7. Keep UPI MDR separate from gateway, wallet, card, soundbox and subscription fees.
8. Avoid adding an undisclosed UPI surcharge to customer bills.
9. Raise a dispute if an exempt transaction is charged incorrectly.
10. Keep customers informed using clear and accurate language.

What Customers Should Do

Customers should follow these precautions:

• Verify the recipient’s name before paying.
• Check the final amount before entering the UPI PIN.
• Never enter a UPI PIN to receive money.
• Do not approve an unexpected collect request.
• Ask for a bill if a merchant demands an additional UPI charge.
• Keep the transaction ID when reporting a problem.
• Use only the official support section of the payment application.
• Contact the linked bank if the application cannot resolve the issue.
• Escalate unresolved eligible complaints through the RBI complaint mechanism.

Common Myths About the New UPI Policy

Myth: Every UPI Payment Above ₹2,000 Will Be Charged

This is false.

Person-to-person transfers remain free. The new MDR applies only to specified merchant transactions.

Myth: Customers Will Pay 0.4% Extra

This is false.

The 0.4% MDR is a merchant-side processing fee. Customers should not be charged the fee separately.

Myth: Google Pay Will Charge but PhonePe Will Remain Free

This is false.

The policy applies across the UPI network. It is not limited to a particular application.

Myth: The Government Will Collect 0.4% as Tax

This is false.

MDR is not a government tax. It is distributed among organisations participating in the payment ecosystem.

Myth: Every Shopkeeper Must Pay MDR

This is false.

Payments up to ₹2,000, qualifying small merchants and eligible rural or semi-urban merchant QR payments remain exempt.

Myth: Customers Must Switch to Cash

This is false.

Customers do not directly pay MDR. Most UPI merchant transactions are also expected to remain unaffected.

Frequently Asked Questions

Do I Have to Pay for Sending ₹10,000 to a Friend?

No. A genuine person-to-person UPI transfer remains free.

What Happens If I Pay ₹2,001 to a Shop?

If the shop and transaction are not exempt, merchant-side MDR may apply because the payment exceeds ₹2,000.

The customer should still authorize only ₹2,001.

Will Google Pay, PhonePe or Paytm Deduct 0.4% From My Account?

No. The 0.4% is a merchant-side processing fee. It should not be deducted as an additional amount from the customer’s bank account.

Does the Rule Apply to Online Shopping?

It can apply when the payment is classified as an eligible person-to-merchant UPI transaction.

The website may also have separately disclosed delivery, platform or convenience charges. These should not be confused with MDR.

Can a Shop Refuse UPI for a Large Purchase?

A merchant may choose which payment methods it accepts, subject to applicable laws and commercial agreements.

However, the merchant should not falsely describe MDR as a government tax payable by the customer.

Can a Merchant Ask the Customer to Split a Payment?

Payments should not be artificially divided to avoid payment or merchant rules. Payment providers may monitor unusual transaction patterns.

Are UPI Transaction Limits Changing?

The MDR announcement concerns merchant-payment pricing.

Normal UPI limits continue to depend on NPCI rules, the payment category, the customer’s bank and application-level security controls.

Will UPI Rewards and Cashback Stop?

The policy does not require rewards or cashback to stop.

Each application may change its promotional programme according to its own terms.

Where Can I Report an Unauthorized UPI Charge?

Start by opening the relevant transaction in Google Pay, PhonePe, Paytm or the application used.

If the issue remains unresolved, contact the linked bank and follow its grievance-escalation procedure. Eligible unresolved complaints can be escalated through the RBI complaint system.

Why Was the New UPI Policy Introduced?

UPI processed approximately 24.5 billion transactions worth around ₹29.82 lakh crore in August 2026.

Operating a payment network of this size requires continuous investment in:

• Servers and network capacity
• Cybersecurity
• Fraud detection
• Technical support
• Transaction dispute handling
• Payment reliability
• New features
• Expansion into underserved areas

The purpose of MDR is to provide a sustainable source of revenue for organisations that operate and support the UPI ecosystem.

Five percent of total MDR collections is also intended to support a fund for expanding UPI acceptance among small merchants.

Final Conclusion

The new UPI policy does not make UPI chargeable for ordinary customers.

Personal transfers remain free. Customers should not pay MDR, and merchant payments of ₹2,000 or less remain unaffected.

The main change is a merchant-side processing fee on certain commercial UPI payments above ₹2,000. Small merchants, qualifying rural and semi-urban merchants, and certain protected transaction categories remain exempt or receive reduced rates.

The same rules apply whether a customer uses Google Pay, PhonePe, Paytm, BHIM, Amazon Pay, WhatsApp Pay or another participating UPI application.

For customers, the practical rule is simple: verify the recipient and amount before entering the UPI PIN, and question any separate UPI surcharge.

For merchants, the priority is to confirm the business classification, understand settlement deductions and explain the policy accurately to customers.

Sources

• Government of India Press Information Bureau clarification dated 15 September 2026
  https://www.pib.gov.in/PressReleasePage.aspx?PRID=2310586&lang=2&reg=48
• Reuters report on the NPCI merchant-fee framework dated 15 September 2026
  https://www.reuters.com/world/india/india-payments-authority-sets-04-fee-upi-merchant-payments-above-2000-rupees-2026-09-15/
• Reuters explainer dated 16 September 2026
  https://www.reuters.com/world/india/indias-upi-fee-shake-up-what-changes-why-it-matters-2026-09-16/
• NPCI UPI product statistics
  https://www.npci.org.in/product/upi/product-statistics
• NPCI UPI frequently asked questions
  https://www.npci.org.in/what-we-do/upi/faqs

Payment rules and implementation guidance may be updated. Merchants should verify their classification and settlement terms with their bank or payment provider.

 

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